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Home My WebLink AboutItem A: Budget Service Realignment ECC UGENE ITY OUNCIL AIS GENDA TEM UMMARY Work Session: Fiscal Year 2009 Service and Budget Alignment Process Meeting Date: October 17, 2007 Agenda Item Number: 1 Department: Central Services Staff Contact: Kitty Murdoch www.eugene-or.gov Contact Telephone Number: 682-5860 ___________________________________________________________________________________ ISSUE STATEMENT Shall the City of Eugene use a limited Budgeting for Outcomes process for building the FY09 Proposed Budget that aligns all services with the five council vision/goal statements? BACKGROUND Due to the inability of current resources to support the future cost of current service levels in the General Fund, the Budget Committee and the City Council approved an allocation of $100,000 in the FY09 budget to undertake a review of General Fund services in order to build a sustainable General Fund budget by FY11. Over the summer, staff initiated a Request for Qualifications and selected a consultant, Public Strategies Group, to advise City of Eugene staff in new and effective approaches for allocating resources so the City delivers the services citizens most want and are willing to support. The Budget Committee reviewed the plan for building the FY09 budget on October 15, 2007. Due to time constraints, the Budget Committee and the City Council are providing the public voice in the initial phase of the project. As in the past, public comment will be included in the spring review of the proposed budget. Staff is still designing the technical aspects of the project. As an example, the project was originally envisioned as a review of the General Fund and the effort now encompasses all operating funds. Because data will be collected differently, it is very likely that the look and content of the budget document, especially the service view of the budget, will change in FY09. Historical costs of services may not be comparable in this new approach. RELATED CITY POLICIES The budget will more clearly support policy A.1. of the Financial Management Policies: “The City budget will support City Council goals and policies, Council adopted long-range plans and service needs of the community.” The budget will continue to be prepared in accordance with Oregon Budget Law. COUNCIL OPTIONS The council may: 1)Endorse the proposed changes to the FY09 Budget Process and budget document; L:\CMO\2007 Council Agendas\M071017\S0710171.doc 2)Keep the current “traditional” process and current look of the budget document; 3)Propose other changes to either process. CITY MANAGER’S RECOMMENDATION The City Manager pro tem and the Executive Management Team have met several times over the summer to discuss the shape and direction of the project. The City Manager recommends the limited Budgeting for Outcomes budget process in FY09 as described in the attached materials and presentation from the consultant to the Budget Committee on Monday evening, October 15. Furthermore, if the project is successful, the City Manager pro tem recommends that the FY10 Budget be developed using a full Budgeting for Outcomes process that will involve additional public input (community forums, focus groups, surveys, etc.) into the goals and the service strategies selected to achieve those goals. SUGGESTED MOTION Move to approve using the Limited Budgeting for Outcomes Process to develop the FY09 Proposed Budget by 1) endorsing the use of the five vision statements as the foundation for aligning services and allocating resources; 2) acknowledging that the City Council and Budget Committee will function as the citizen input in the first phase of this effort by reviewing goal maps designed to identify the significant factors that contribute to achieving the desired outcomes of the vision statements; 3) participating in a review of the process at the completion of the FY09 budget cycle, and if warranted, committing to a full budgeting for outcomes approach using additional public input to build the FY10 budget; 4) acknowledging that the budget document will reflect this new approach and will not contain the same information as presented in previous documents. ATTACHMENTS A. Overview of the Process and Roles B. City Council Vision Statements C. Budgeting for Outcomes article FOR MORE INFORMATION Staff Contact: Kitty Murdoch Telephone: 682-5860 Staff E-Mail: kitty.m.murdoch@ci.eugene.or.us L:\CMO\2007 Council Agendas\M071017\S0710171.doc ß¬¬¿½¸³»²¬ß City of Eugene Service & Budget Alignment Project Goals of the Project Align services with the City Council’s goals/vision statements Lay the groundwork to reach a sustainable General Fund budget by FY11 to respond to an emerging structural deficit Identify and fund the services that contribute the most to achieving the goals based on the dollars invested for the value received Create a more transparent budget process Support investments in innovations that help achieve the above goals Create a budget document that focuses on showing the alignment of services and service levels with the Council goals Brief Description of the Process The city will align its services with the goals it wishes to achieve and make decisions regarding the amount to invest in each service according to the degree to which it helps achieve the goals of the city. Levels of service will be evaluated based on the value produced for the money invested. Opportunities for providing services in new ways or to improve efficiency or effectiveness will be identified to implement now or in the future. Steps for FY09 Process 1)The City Council approves using the Council vision statements as the goals for this process and confirms their support for the FY09 budget process. 2)Goal Teams made up of city employees identify three indicators for each Council goal and develop cause and effect maps that show, based on evidence, the major contributing factors to achieving the goals. 3)Goal Teams receive feedback on their cause and effect maps from the Steering Committee, the Executive Management Team, and the Budget Committee. 4)Departments develop service offers scaled to show relative value per dollar invested and submit them to the relevant Goal Teams. 5)Departments submit innovation proposals that are investments of limited duration with a projected high Return On Investment that have the potential to improve the efficiency or effectiveness of services. 6)Goal Teams rank service offers into high, medium, and low categories, rank innovation proposals, and make observations about opportunities for improvement. 7)The City Manager uses the Goal Team work as valued input into the proposed budget. 8)City leadership evaluates and learns from the FY09 budget process and designs the plan for service & budget alignment for FY10 including expanding community input. ï ß¬¬¿½¸³»²¬ß Roles in the FY09 Process City Council/Budget Committee: Approves the goals as the basis for the service alignment Provides feedback on the cause and effect maps and indicators for each goal Approves the general approach to the budget process Uses the information to focus budget discussion on what contributes most to achieving the city’s goals City Manager/Executive Management Team: Champions the process Uses the Goal Team input as valued advice in constructing the City Manager’s proposed budget Assures resources are available to carry out the process Steering Committee: Provides oversight for the project from the perspective of departments Provides feedback on the cause and effect maps and indicators for each goal Comments on the Goal Teams work and provides comments to City Manager and Executive Management Team Budget Manager/Finance Director: Leads the process including staffing the Steering Committee and assuring resources are available to support Goal Teams Assures that there are regular communications with the Council, Budget Committee, Executive Management Team and employees Works with consultants to assure value is received î ß¬¬¿½¸³»²¬ß í City Council Goals Attachment B SAFE COMMUNITY A community where people feel safe, valued, and welcome. SUSTAINABLE DEVELOPMENT A community that meets its present environmental, economic, and social needs without compromising the ability of future generations to meet their own needs. ACCESSIBLE AND THRIVING CULTURE AND RECREATION A community that recognizes that the arts and outdoors are integral to the social and economic well-being of the community and should be available to all. EFFECTIVE, ACCOUNTABLE MUNICIPAL GOVERNMENT A government that works openly, collaboratively, and fairly with the community to achieve measurable and positive outcomes. FAIR, STABLE AND ADEQUATE FINANCIAL RESOURCES A government whose ongoing financial resources are based on a fair and equitable system of revenues and are adequate to maintain and deliver municipal services. N ative Americans have many sayings, and one of the wisestexpenses look smaller. Similarly, some states have urged retailers is this: When youÕre riding a dead horse, the best strategythat normally submit their June sales tax receipts in July (next fiscal is to dismount. Traditional budgeting, which focuses on year) to do so in June, thus propping up the current year's rev- costs rather than results, is the dead horse of the public sector. enues. ItÕs all legal and properly accounted for, but it does not When we budget for costs, we get more of them. What we donÕt get reflect the governmentÕs true financial condition. is the innovation and accountability for results we need if we are to win the competition for public support. Even when the general fund is legally prohib- Borrowing. ited from being in debt, governments find ways to borrow. New Winning back the public support we have lost over the past 40 York City mastered this dubious art in the 1970s, when it piled up years is the greatest challenge we face in government today. Yet so much debt that it landed in receivership. Both the city and state when faced with deficits, many governments resort to politically of New York are still trying to figure out when and how to pay off expedient budget and accounting practices that only deepen pub- all the bonds issued back when New York truly was, in former lic cynicism. The public finance literature refers to such practices Mayor John LindsayÕs famous phrase, ÒFun City.Ó as Òfiscal illusions,Ó since they distort the ability of stakeholders to evaluate the true costs and benefits of gov- During the current fiscal crisis, several ernment programs. Seven such illusions are states have proven that the Òwhat me worryÓ particularly harmful to the financial credi- politics of borrowing works for both political bility of state and local governments: parties. Instead of making the difficult deci- sions necessary to secure their long-term fis- When cal health, these states borrowed their way to Robbing Peter to pay Paul. that general fund gets in trouble, some lead- ÒbalancedÓ budgets either through outright ers start eyeing Òoff budgetÓ funds as deficit financing or less transparent means resources to be mined. One state govern-such as pension obligation bonds. These maneuvers failed to convince the credit rat- ment helped balance its budget by transfer- ing agencies, which in some cases lowered ring the cost of running a waterway system their ratings to junk-bond status. from the general fund (Òon budgetÓ) to the toll road authority (Òoff budgetÓ). Another state transferred management of a conven- When times are Selling off assets. tion center and parking garage to the state tight, it is popular to sell surplus buildings, pension fund to lower its cash contribution land, or other assets, and then use the pro- from the general fund. Technically, this ceeds to plug a hole in the operating budget allowed the state to show a savings of $175 by treating the real estate money as though it million. Robbing Peter to pay Paul can plug a were ÒnormalÓ revenue. For example, hole to make the budget look better this year, instead of resolving a significant structural but the same hole will reappear next year, budget problem, the leaders of one city gov- when Peter and Paul will both be worse off. ernment decided to sell the water and sewer works to the off-balance sheet entity that operated it. A year later, the city sold $51.2 million in tax and sewage liensÑmoney due to the Using accounting gimmicks to disguise Þscal prob- city that it not yet been able to collectÑfor $32.2 million. The city As the Enron debacle showed, accounting presents leaders lems. has continued to rely on one-shot revenue sources to balance the with many dangerous choices. Quick-fix accounting gimmicks annual budget, putting off the crisis for one more year. include pretending (or even requiring) that money you expect to receive early next year will actually come in late this year. The opposite side of the coin is to pretend (or even require) thatA budget is really just a forecast, a Making something up. expenses planned for this year will be made, technically, next year.statement of expected revenues and expenses. If done correctly it can be a serviceable estimate. But in the end, every budget is For example, some states have informed school districts expecting based on assumptions, and you can make it look better or worse a school-aid payment in the current fiscal year that they will not simply by changing those assumptions. receive it until the next fiscal year, thus making the current year's October 2004 Government Finance Review11 | Ronald ReaganÕs approach in 1982 was a classic example ofchanged the rules of the budget game. His success has inspired others to follow. The City of Spokane and Snohomish County, in making the budget ÒworkÓ by working the assumptions. To justify massive tax cuts, his budget director, David Stockman, forecast 5Washington, the cities of Azusa and Los Angeles, in California, and the State of Iowa have all embraced Budgeting for Outcomes. The percent growth for 1982. According to Òsupply sideÓ theory, this State of Washington is now completing its second budget using would help create a $28 billion surplus by 1986. As it turned out, these principles. ÒOne of the lasting achievements of Gov. Gary the gross domestic product fell by 2 percent in 1982Ñand the Locke should be to make permanent the budget process he used largest deficits since World War II soon followed. In his memoirs, two years ago,Ó the Seattle Times recently editorialized. ÒThe state Stockman admitted that the entire effort, sardonically nicknamed is using it again, and it needs to keep using it after he is gone.Ó Òrosy scenarioÓ by White House insiders, was a sham. The following steps constitute the core of Budgeting for Too often, the political Nickel and diming employees. Outcomes: response to budget problems is symbolic. Leaders order coffee Establish up front how much 1.Set the price of government. pots unplugged, travel budgets slashed, and consultants banned. citizens are willing to pay for the results they want from government: To save energy, they force workers to endure hotter offices in sum- what percent of their personal income they are willing to devote to mer and colder offices in winter. Some even outlaw potted plants. taxes, fees, and charges. Every jurisdiction has its own price, and it In one state last year, the governor ordered that every other light is usually quite stable over time. The price of government for the bulb in government buildings be unscrewed. While such actions U.S. as a whole, including all federal, state, and local governments, may send a message, they have two critical consequences: they has averaged about 36 percent of personal income for the last 50 donÕt save much money and they kill morale. years. History is a good guide, since leaders must ensure that the price they set is acceptable, adequate, and competitive. Delaying maintenance and replacement of assets When our personal budgets get tight, we (and relying on hope). Define the outcomes 2.Set the priorities of government. sometimes donÕt take our car in for its regular oil change, or we that matter most to citizens, along with indicators to measure donÕt fix the crack in the driveway. We can save a little money now, progress. Citizens donÕt think in terms of programs or activities but if a missed oil change leads to overheating, we can crack the (and certainly not in terms of departments). They want resultsÑ engine block. The people who make Fram oil filters said it well: things like safety, jobs, and health. Elected officials need to find ÒYou can pay me now or pay me later.Ó out and articulate what matters most to their constituents, using many of the same methods they use to get themselves elected: Fiscal illusions may help our leaders solve the math problem PollingÑrandom sampling of public opinion. and claim that their budgets are balanced. But they fail utterly to address the real problem: how to deliver the results citizens want Focus groupsÑmultiple discussions with randomly at the price they are willing to pay. selected participants. So does the other common dead horse solution: across-the- Town hall sessionsÑmultiple public discussions with board cuts. Across-the-board cutting allows us to avoid the hard whoever shows up (facilitated by experienced staff). work of making choices, but it is nothing more than thinning the Civic journalismÑnews media initiatives to engage readers, soup. Every time we use it, we pretend that everything our organ- listeners, and viewers in interactive discussions, debates, izations do is equally valuable to our citizens. We also pretend and feedback about priorities. that they wonÕt notice. Done enough times, thinning the soup Web sitesÑfeedback collected in response to efforts to makes government services distastefulÑcontributing directly to heighten awareness. lost citizen confidence. Generally, you should select 10 or fewer outcome goals. In the end, these priorities should be expressed in citizen terms using BUDGETING FOR OUTCOMES indicators that citizens would use to assess progress. In choos- In 2002, Gov. Gary Locke of Washington concluded that it was ing indicators: time to find a new horse. He turned traditional budgeting on its headÑaccepting the challenge of delivering results citizens val-Include both subjective and objective measures (citizen per- ued at the price they were willing to pay. In so doing he literally ceptions of safety and the crime rate, for example). October 2004 12Government Finance Review | DonÕt settle for activity data that is readily available; commit toCreating such a map requires those involved to be clear about indicators of real results. how they think activities add up to results. Doing so subjects each Òtheory of what matters mostÓ to a challenge from every compet- Use an index if necessary to capture multiple sources of related ing theoryÑexactly the kind of debate the budgetary process data. Washington developed an index of health that combines should stimulate. data on the incidence of major diseases, for instance. In the end, the acid test is whether the priorities and indicators These cause-and-effect maps help purchasers choose from you have chosen make sense to citizens. Snohomish County in among many possible strategies and to assign a relative priority to Washington literally put their priorities in the terms that citizens each. Washington StateÕs health team identified four possible use. Here they are: strategies: increasing healthy behaviors (getting citizens to eat bet- I want reasonable and predictable 1. TransportationÑ ter, drink less, quit smoking, get more exercise, etc.); mitigating travel times. environmental hazards (ensuring cleaner water, air, and food); identifying and mitigating risk factors related to gender, socioeco- I want to feel safe where I live, work, and play. 2. SafetyÑ nomic hardships, and genetic predispositions; and providing I want kids in my community schools to pass 3. EducationÑ access to appropriate physical and mental health treatment. the state school achievement tests. These four strategies appeared on the stateÕs map. I want to improve the health 4. Health and VulnerabilityÑ of people in the community and reduce vulnerability of When the team ranked these strategies in terms of their contri- those at risk. butions to the end result, it decided that mitigating environmen- tal hazards was most important, increasing healthy behaviors was I want to live in a thriving community, one 5. CommunityÑ second, providing access to health care was third, and mitigating with infrastructure sufficient to support planned growth. risk factors was fourth. With limited resources, it decided to I want my community to be prepared to 6. PreparednessÑ increase the stateÕs emphasis on the first two. Research data had respond to emergencies. convinced team members that this was the way to get the most I want 7. Effective, Efficient, and Transparent GovernmentÑ bang for its buck, even though it meant reducing spending on to get the level of service I need at an affordable price and more traditionalÑand highly expensiveÑpatient care. In fact, see that my dollars are spent wisely. their analysis showed that these two strategies would yield a 16-to- Divide total revenue 3.Set the price of each priority. 1 return on investment. among the priority outcomes on the basis of their relative value to The old budget game would have led the health team to focus on citizens. Here again, ask citizens for guidance. Give them $100 or the strategies with the greatest costs. The new approach required 100 percent to divide among the priorities, based on their assess- the team members to ignore last yearÕs numbers and figure out ment of relative value. There is no right answer to this questionÑit where the best results could be obtained for the money available. is a matter of judgment. The goal is to put a relative value on each result citizens seek. Executives must make the final call, but know- 5.Solicit offers from providers to deliver the desired ing what citizens think makes their job a lot easier. With their outcome goals and strategies clearly in mind, results. buyers then solicit offers to see who can deliver the most results Create 4.Develop a purchasing plan for each priority. for the money. This is the step that departs most radically from the Òbuyer teamsÓ to act as purchasing agents for the citizens. Ask each one to determine what matters most when it comes to delivering its old budget game. Instead of asking agencies or departments to assigned result. This is a crucial stepÑand an exciting one. It chal- add or subtract from last yearÕs costs, the purchasing agents incor- lenges team members to get outside of their day-to-day work, step porate the results, price, and purchasing strategy they have set- back, and explore which factors have the most impact on the tled upon into something like a request for proposalsÑcall it a desired result, whether they are part of what government does or not. Òrequest for resultsÓ. This solicitation replaces the traditional budget instructions. The request for results can be sent to all agen- This means answering questions such as, ÒWhen it comes to stu- cies and departments, to other governments, even to unions, non- dent achievement (or the health of citizens, or decreasing conges- profits, and for-profit organizations. It asks each of these potential tion), which factors have the most impact, and how do different fac- suppliers to identify how they would help deliver the expected tors interact?Ó The answers can be compiled into cause-and-effect results, and at what price. maps that provide the basis for deciding which routes to follow. October 2004 Government Finance Review13 | In developing their responses, sellers need not, indeed cannot,the end of this process, the support of those above the line can take anything for granted. They must assume that for each resultcounterbalance the opposing arguments of those below. there will be many proposals from many potential sellers. If they 7.Negotiate performance agreements with the cho- expect to get funded, they have to offer up proposals that deliver Finally, frame the budget as a collection of per- sen providers. the needed results at a competitive price. Since an individual formance agreements. These should spell out the expected out- bidder may choose to submit multiple proposals (for its various puts and outcomes, how they will be measured, the conse- programs and activities), it is in a sense competing against itself. quences for performance, and the flexibilities granted to help This forces it to challenge its own practices, to make them as the provider maximize performance. As a result, accountability competitive as possible. is built into the budget. Sellers are not limited by the past; the process encourages them to come up with new approaches and creative twists. Some will LEADERSHIP THAT ÒCHANGES THINGS TO MAKE forge partnerships across departments or agencies, with other gov- THINGS BETTERÓ ernments, and with nongovernmental organizations. The bidding When Peter Hutchinson was superintendent of the process also encourages them to consider ways they could con- Minneapolis Public Schools, his favorite activity was visiting tribute to more than one of the priority outcomes. While it is chal- classrooms. One day, in a fourth grade classroom, the teacher lenging to bidders, the process also liberates them. stopped the class to introduce him. She explained that he was the superintendent of schools and asked the class if anyone After the offers are in, the 6.Buy the best,leave the rest. knew what a superintendent was. buyers must rank them in terms of results delivered per dollar, then move down the list, buying according to priority until avail- Hands flew into the air. (Fourth graders are so enthusiastic able funds have been exhausted. Then draw a line. Those propos- about learning that they will take a stab at any question.) The als above the line are in, the rest are out. This buying plan teacher called on an eager young man who proudly announced becomes the budget. It is a list of keeps, not cutsÑpositive choic- that the superintendent was the guy in charge of Super Nintendo. es for spending the citizensÕ resources to buy the citizensÕ results. The teacher allowed as how that was a very creative answer, then The diagram below, from the Washington budget presentation, explained that the superintendent was the leader of the schools. shows how this was done for the health result. ÒDoes anyone know what a leader is?Ó she asked. Hands flew again. The teacher called on a young girl in the back who was raising her hand so hard and high that Peter was afraid it might become detached from her body. She stood very straight and tall as she answered, ÒA leader is someone who goes out and changes things to make things better.Ó Hutchinson was stunned: A fourth grader had articulated perfectly what government needsÑand what people expect. ItÕs time for leaders to dismount the dead horse strategies that are taking us nowhere. Budgeting for Outcomes means saddling up to Òchange things to make things better.Ó Can we live up to that fourth graderÕs expectations? Given what is at stake, do we have any other choice? This article is adapted from The Price of Government:Getting the Laying out the budget this way is another radical departure. In Results We Need in an Age of Permanent Fiscal Crisis,a new book tough times, the traditional process makes us put 100 percent of by and (Basic Books, our time and energy into finding the 5 to 15 percent to cut. When DAVID OSBORNEPETER HUTCHINSON 2004).Both Osborne and Hutchinson are partners in the Public we are done, we publish the list and set ourselves up for attack by Strategies Group (www.psg.us),a consulting firm whose mission the interests directly affected. In Budgeting for Outcomes our ener- is Òtransforming governance.Ó gies go into deciding what to keep, and where to draw the line. At October 2004 14Government Finance Review |